Turkey: New Era for Turkish Tender Offers

Part 1 - Introduction and Key Differences Between Old
Legislation and New Legislation

Buying public company shares through voluntary and compulsory
tender offers has experienced fast and significant development in
global capital markets.

The Capital Markets Board of Turkey (CMB) introduced tender
offers to the Turkish capital markets in 1994 with
Communiqué Serial: IV No: 8 (the Old Legislation). The CMB
published a new Communiqué Serial: IV No: 44 (the New
Legislation) on 2 September 2009 which supersedes the Old
Legislation1. The broad aim of this New Legislation was
to bring Turkish legislation in line with EU standards and make the
Turkish Capital Markets more attractive to investors.

We compare the Old Legislation to the New Legislation in Part 2
below and comment on the differences.

Some of the key differences are as follows:

Precise definition of "management control". In the
New Legislation the key trigger for a compulsory tender offer is a
change in "management control". The New Legislation
defines "management control" in detail, which will make
it easier for a potential buyer of shares in a public company to
understand whether a compulsory tender offer is necessary.

Abolition of 25 per cent threshold. Under the Old Legislation a
compulsory tender offer must be made if a person held 25 per cent
or more of the share capital and voting rights of a Turkish public
company. The New Legislation in its definition of "management
control" changes this threshold to 50 per cent, which will
help to promote strategic partnerships in Turkish public
companies.

It is clear what does not trigger a compulsory tender offer.
The New Legislation sets out a clear set of circumstances where a
compulsory tender does not need to be made (despite there being a
change in management control). This again gives greater clarity for
potential buyers.

No "General Assembly" exemption to a compulsory
tender offer. The New Legislation removes the controversial
exemption from a compulsory tender offer in the Old Legislation if
2/3 of the shareholders of a company approve it in a General
Assembly. This change protects minority investors.

Clarification of compulsory tender offer timeline, price and
disclosure principles. The New Legislation: clarifies the
compulsory tender offer timeline; contains detailed rules about
calculating compulsory tender offer price; and clarifies what
public disclosures should be made in a compulsory tender offer.
Again these amendments aim to create greater market certainty.

Partial voluntary tender offers. Under the New Legislation
partial voluntary tender offers are possible (for example a tender
offer directed at a specific share group of the target public
company). This allows potential investors greater flexibility.

Therefore the changes introduced by the New Legislation
encourage potential investors to invest in Turkish public companies
by introducing certainty and flexibility. The New Legislation also
protects minority investors by abolishing the "General
Assembly" exemption and setting out detailed disclosure
rules.

Part 2 - Detailed Comparison Between Old Legislation and New
Legislation and Comments

Matter

Old Legislation

New Legislation

Comments

1. What triggers a compulsory tender offer?

If any party or parties acting in concert, directly or
indirectly, gain:

25% or more of the capital and voting rights; or

shares granting the management control of a public company
(regardless of the percentage of shares bought),

through voluntary bid, block sale, series of sales or by any
other means, such party or parties must make an offer to the other
shareholders to buy their shares.

Further, if any party or parties acting in concert own between
25% and 50% of the capital and voting rights of a public company
and increase this percentage by 10% or more in any given 12-month
period, such party or parties shall make an offer to the other
shareholders to buy their shares.

If any party or parties acting in concert, directly or in
directly, gain:

shares granting the management control of a public
company,

through voluntary partial bid, block sale, series of sales or by
any other means, such party or parties must make an offer to the
other shareholders to buy their shares

The Old Legislation referred to management control but did not
define it. This made it difficult for potential buyers to
understand whether their acquisition would trigger a change in
management control.

2. "Management control".

No precise definition.

"Management control" shall mean direct or indirect
acquisition of 50% or more of the capital and voting rights of a
public company by a party or parties acting in concert.

"Management control" will also be gained if a person
gains privileged shares which grant the right to appoint a majority
of the directors or a public company. This will apply regardless of
the percentage of shares bought.

An indirect acquisition of management control will occur if
there is any change of management control at controlling
shareholder level (or further up the chain of control if
relevant).

The more precise definition of "management control"
aims to minimise market confusion.

The increase in the threshold from 25% to 50% may make it easier
for Turkish public companies to enter strategic partnerships.

3. What does not trigger a compulsory offer?

The Old Legislation does not mention any circumstances which do
not trigger a compulsory offer. The Old Legislation only describes
conditions under which the CMB may grant an exemption from the
compulsory tender offer.

The New Legislation sets out circumstances which will not
trigger a compulsory offer (even if there is a change in management
control):

If the change in management control is due to a voluntary
tender offer or intra-group transfer.

If the change in management control results in management being
equally shared with an existing controlling shareholder.

If percentage threshold has been triggered by a shareholder who
already has management control (for example by holding privileged
shares).

If a shareholder who has management control loses that
management control and then regains it (and no other shareholders
or third parties gain management control during this period).

The New Legislation provides clarity by setting out specific
circumstances where a compulsory tender offer will not be
triggered.

4. Exemption conditions.

Under the Old Legislation a person can apply to the CMB to be
exempt from a compulsory offer if they meet the following
conditions:

The acquisition of shares is necessary to strengthen the
capital of the target public company. The CMB had the right to
examine the relevant company or request an independent audit.

A general assembly meeting attended by shareholders
representing 2/3 of the capital of the target public company
approves the acquisition of shares.

There is no change in the management control of the target
public company following the acquisition. In such cases, the CMB
may examine this and revise the capital of the relevant company if
necessary.

The acquisition is carried out due to compulsory legal
requirements (e.g. inheritance) or the thresholds have been
unwillingly exceeded and the acquirer undertakes with the CMB it
will dispose of the excess as required by the CMB.

The shares were received due to a privatisation.

Under the New Legislation a person can apply to the CMB to be
exempt from a compulsory offer if they meet the following
conditions:

The acquisition of shares is necessary to strengthen the
financial position of the target public company. To grant an
exemption, the CMB may require funding to be made to the target
company or request an independent audit.

The acquirer undertakes with the CMB that it will dispose of
the portion of gained shares or voting rights that triggered the
compulsory bid requirement as required by the CMB.

The change in the management control of the parent company of a
public company is not aimed at gaining the management control of
the public company. To assess this the CMB shall consider whether
the parent company's shareholding in the public company exceeds
10% of its total assets in its latest balance sheet, whether the
shareholding in the public company is insignificant for the general
activities of the parent company and similar conditions.

The shares were acquired because of a privatisation.

The "general assembly approval" exemption (which was
unclear and controversial) no longer applies to the New
Legislation. The CMB commented that this was due to a significant
number of requests from investors to remove the exemption.

5. Timeline.

The compulsory tender offer timeline under the Old Legislation
is as follows:

Time of triggering event
= T

Last day for CMB exemption application (if an application will
be made)
= T + 5 days

Last day for CMB compulsory offer application
= T + 15 days

Last day for CMB to approve the compulsory offer
documentation
= Application date + 30 days

Last day for beginning of offer period = Not defined. Offer
period
= Min. 15 – Max. 30 days

Last day by which the CMB and ISE must be notified of the new
shareholding and management as a result of the offer
= End of offer period + 1 week

The compulsory tender offer timeline under the New Legislation
is as follows.

Time of triggering event
= T

Last day for exemption application to CMB (if an application
will be made)
= T + 6 business days

Last day for compulsory offer application to CMB
= T + 6 business days

Last day for CMB to approve the compulsory offer
documentation
= Application date + 33 business days

Last day for beginning of offer period
= Date of CMB approval + 6 business days

Offer period
= Min. 10 – Max. 20 business days

The New Legislation also describes in detail the timeline which
will apply if the CMB rejects a company's exemption
application:

Rejection date of exemption application
= R

Last day for CMB compulsory offer application
= R + 6 business days

Last day for CMB to approve the compulsory offer
documentation
= R + 18 business days

Last day for beginning of offer period
= Date of CMB approval + 6 business days

Offer period:
Min. 10 – Max. 20 business days

The New Legislation clarifies the compulsory offer timeline (for
example by referring to business days for the first time and by
providing a specific timeline if the CMB rejects an compulsory
tender offer exemption application

6. Offer price.

The Old Legislation only contains basic rules on compulsory
tender offer price.

The New Legislation contains much more detailed rules on offer
price, which we briefly summarise below.

The compulsory offer price cannot be less than the highest price
paid for the shares of the same kind (including the shares gained
to trigger the compulsory offer) within six months before T.

If the compulsory offer price cannot be determined by this
method the CMB may ask certain institutions (such as investment
banks) to prepare a valuation report to decide a price.

There are also separate price determination mechanisms if there
is an indirect change in the management control of the target
public company (i.e. a change in control at parent company level or
higher) or if the relevant Turkish public company has different
share groups.

The New Legislation also contains various rules on price
equality in compulsory tender offers, and the interest/exchange
rates that will apply to compulsory tender offer prices.

Investors are likely to welcome the clarification the New
Legislation provides on compulsory tender offer price.

7. Public disclosure.

(a) Triggering eventsThe Old Legislation does not contain any specific rules on
public disclosure events associated with tender offers. Offerors
are mainly obliged to comply with other legislation of the CMB on
the public disclosure of material events.

(b) Disclosure documentsThe disclosure documents that need to be prepared and sent
to relevant public bodies to make a compulsory tender offer are as
follows:

Offerors have to prepare and send to the CMB for approval a
compulsory information form and an offer text in a true, accurate,
clear and sufficiently detailed manner highlighting all the
material facts on the transaction.

Once approved by the CMB, the offerors must publish the
compulsory information form in at least two national newspapers,
and in addition send the same to the shareholders holding the
target shares (by publication in the daily bulletin of the
ISE).

Offerors must also inform the CMB and ISE about the
shareholding structure, the management structure and information on
the shares gained through tender offer within one week following
the end of the offer period.

(a) Triggering eventsThe New Legislation requires the following events should
be disclosed to the ISE (and the relevant online public disclosure
platform):

A person becoming obliged to make a compulsory tender offer
(whether an exemption will be sought or not)

A person making an exemption application should disclose the
basis of this application before making the application.

A person should make a disclosure on the date when an offeror
makes an application to the CMB for (a) a tender offer or (b) an
exemption from a compulsory tender offer.

A person receiving the results of a tender offer or exemption
application.

A person receiving the results of a valuation report deciding a
tender offer price.

At the end of each transaction day during an offer period, the
number and value of shares bought and the number of shareholders
who have responded to the offer.

On the last day of the offer period, the total number and value
of shares acquired and the total number of shareholders who have
responded to the offer.

Immediately following the end of the tender offer period the
person making the tender offer should disclose in detail the new
shareholding/ management of the target company.

A person taking a decision to buy shares of a public company by
a voluntary tender offer or deciding to withdraw from that
voluntary tender offer.

A person taking an action to achieve offer price equality under
the New Legislation.

(b) Disclosure documentsSame as for the Old Legislation.

It is expected the morespecific public disclosure rules in the
New Legislation will result with a much stronger information flow
from the target company and offerors to the offerees. This should
help offerees decide whether to accept a tender offer or not.

8. Voluntary tender offer.

The Old Legislation contains basic rules for voluntary tender
offers.

Under the New Legislation, investors can make a partial
voluntary tender offer (i.e. a tender offer directed at a specific
share group of the target public company).

Provides flexibility for investors.

Footnote

1. Please note that aspects of Communiqué
Serial: IV No: 8 which do not relate to tender offers are still in
force so this Communiqué has not become entirely
extant.

Guner Law Office was established in 1996 and has since
grown into one of the major corporate, M&A, banking,
litigation, energy and TMT practices in Turkey. Guner Law Office is
headed by Ece Guner and works with international law firm Denton
Wilde Sapte.

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